Online Portfolio Manager Review: BMO SmartFolio

This post brought to you by BMO. The content and opinions expressed below are that of Million Dollar Journey.

It seems that automated online portfolio managers are the hype of the investment world these days. With BMO introducing SmartFolio, a new online portfolio management service and the first of the big banks, they contacted me to provide my opinion of their new product. My plan is to review all other similar automated services available to the Canadian market place and provide a comparison – similar to my discount brokerage comparison.

What is BMO SmartFolio?

BMO SmartFolio is a“hands-­free” digital portfolio management service. You can open an account with as little as $5,000 and based on your risk tolerance, you are aligned to the model portfolio that best suits your investing needs.

How it Works

First you complete an investor profile by answering a series of personal and investment questions (10 multiple choice questions) and then you will be presented with a recommended model ETF portfolio (this is free). Each model ETF portfolio has an asset allocation of equity and/or fixed income that aligns to your investment objectives. There are 5 model ETF Portfolios (ranging from the least risky to the most risky, i.e. having the smallest percentage in equities to the largest).

BMO SmartFolio Capital Preservation Portfolio;

BMO SmartFolio Income Portfolio;

BMO SmartFolio Balanced Portfolio;

BMO SmartFolio Long Term Growth Portfolio; and,

BMO SmartFolio Equity Growth Portfolio.

BMO expert portfolio managers monitor the model ETF portfolios every day. Where and when required, they rebalance the model ETF portfolio to keep the client on track with their investment objectives.

My Personal Investment Profile

To provide a more comprehensive review, I signed up for BMO SmartFolio to get a sample portfolio for my risk profile. I completed the 10 questions which started with some questions about income, investment knowledge and investment timeline. The survey then finished with a few questions on the amount of volatility you can tolerate. Based on my information, SmartFolio determined that I should have an Equity Growth Portfolio consisting of 90% equities and 10% fixed income. When the actual portfolio came out, it was actually 95.99% equities and 4.01% fixed income. Here are the positions that they recommended for me:

While I’m comfortable with the equity exposure and some of the chosen ETFs, it’s still a bit too complex. For my real indexed portfolios, I basically hold four positions, Canadian equity, US equity, International equity, and a bond index. So if I were to put together a portfolio of this nature, I would keep: ZCN, ZEA, ZEM, ZSP, ZMU and dump the rest. This would also reduce the overall MER as well.

Cost

This is the big question that always comes to mind when evaluating services like BMO SmartFolio. Lets take a look at what they charge for their service.

Minimum account size: $5,000;

First $100,000: 0.70%;

Next $150,000: 0.60%

Next $250,000: 0.50%

$500,000 and greater: $0.40%

There is a minimum quarterly advisory fee of $15­, but waived if you deposit $250 or more during that quarter.

So what does this all mean in dollars and cents? Lets look at some portfolio size examples:

Account Size

Advisory Fee Paid Annually

$5,000

$60

$10,000

$70

$25,000

$175

$50,000

$350

$100,000

$700

$250,000

$1,600

$500,000

$2,850

$1,000,000

$4,850

Note that the annual advisory fee does not include the management expense ratio that ETFs charge. Although most BMO ETFs are reasonably priced, their website states that the anticipated weighted average MER of a portfolio will be between 0.20% and 0.35%.

The Benefits

Here are some of the benefits of BMO SmartFolio:

You have access to ­constructed portfolios comprised of BMO’s reasonably priced ETFs based on your own risk profile;

Downside

The only real downside I can see is that clients are forced to use BMO ETFs. I’m not saying that it’s a deal breaker as most have reasonable MERs, but it would be nice to have some choice.

Final Thoughts

When BMO first contacted me to take a look at their new offering, I’ll be honest and say that I was skeptical. However, after reviewing SmartFolio, I can see how this type of service will be attractive to many investors who want to be more hands-free with their investments, but willing to pay a small annual fee. I’m looking forward to reviewing competitors in this niche to see how they compare to BMO.

Back to you, what are your thoughts on automated online portfolio management services? If you have experience with them, how does BMO compare to the competition?

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About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

Why do they need to charge for this service? Do the ETF’s become free to buy if you use this service? One can build the exact same portfolio, with BMO ETF’s without paying the yearly portfolio fee. It’s hard to justify the yearly portfolio fee if all it is is the original allocation.

That’s the thing, I don’t really have a frame of reference to the competition. I will be following up with more reviews of the competitors. I do not think that this type of service is meant for savvy investors who can DIY. It’s more of the investor who understands indexing, ETFs, but would like to automation in rebalancing etc for a relatively low fee.

In terms of BMO being less successful, I had an industry rep laugh at how ‘successful’ places like Wealthsimple are. To paraphrase him, a small office of successful advisors probably does as much business as Wealthsimple. Not taking anything away from wealthsimple, but they numbers aren’t as big by comparison as they seem to be.

I’m pretty sure that BMO’s robo advisor, despite any fleas it may have, will very quickly be doing orders of magnitude more than the other folks pretty quickly.

Advertising on PF blogs?! Wow, BMO must be desperate to get this thing off the ground and hook any/all AUM they can. However, I’m sure they weren’t counting on all the negative counter-comments of their new service.

It appears total cost would be about 1% for a $100k account or 0.78% for a $1million account. Charges like that are why I left a Full Service Broker. But at least the FSB wasn’t investing in ETFs.

One way to reduce cost if this sort of thing interests you, is to open a $100k account. Then if you have $1million, invest the other $900k your self in exactly same way. That would reduce cost to 0.1%.

The fixed income part of this plan would be invested in bond etfs. Not in actual bonds or GICs with fixed interest and maturity. Not a way I would want my fixed income invested.

So even although, as we age, I am interested in partly moving to a less hands on approach, I consider this just a money grab that is aimed at taking advantage of those without the knowledge or inclination to manage their own affairs.

Your suggestion to “invest the other $900K yourself” makes it seem like you are totally missing the point of these robo-advisor services. They are an alternative to DIY, not meant to be used in conjunction with DIY. The idea behind them isn’t solely to just get someone else to pick your ETF allocation for you, it’s to completely manage all the buying, selling, and rebalancing, so that the investor doesn’t need to do anything or make any decisions. It’s not targeted at those who are smart enough to do their own purchasing and rebalacing, it’s as you say: a money grab aimed at those who don’t have the knowledge or inclination to manage their investments. I disagree that it’s “taking advantage” of them, it’s simply a service you can opt to pay for if you don’t feel comfortable doing it yourself. Look it as more like changing the oil on your vehicle. People pay a very high premium to have someone else do it, but it’s actually quite easy to do yourself, if you have the knowledge and inclination!

Does this tool eliminate trade-commission fees?
If yes – with a monthly contribution distributed evenly among the predetermined allocation – the annual fees seem well worth it for those starting out.
If no – yowsers!

Perhaps you can review Larry Berman’s Two BMO Tactical (Dividend and Global) funds. I like the fact that he seems to be actively balancing the allocation according to market conditions, not just risk profile, etc.

Not too sure about the other robo type advisors but BMO could not, at this time, transfer my RRIF into their SmartFolio even though my RRIF was comprised of BMO funds. ‘Perhaps later in the year’, they said.

At $10 per trade on investor line – if I scaled the number of etfs down to 4 (canadian, usa, global, fixed) per month – that amounts to $40 per month = $480 per year.

Anyone have any suggestions on how to DIY monthly contributions on the cheap? I suppose I could just do lump sum contributions 1-2 times per year but then I’d lose out on dollar cost averaging benefits.